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This one little change could mean big things for the Australian housing market

If a rule introduced by the country’s banking regulator five years ago is reversed, it could mean that the Australian housing market is about to boom.

“One of the major reasons we had the big house price falls – particularly in Sydney and Melbourne – is that it’s difficult to get a loan, virtually impossible for a lot of people,” business journalist Brooke Corte told Weekend Today.

Ms Corte said the problem is borrowers’ ability to repay loans are compared against a rate much higher than what currently exists.

“When you go for a loan, whether it’s a new loan or to refinance, you might talk to the bank about a rate of 3.5 per cent or 4 per cent, but by law the banks have to assess you on ability to pay back a loan of 7.25 per cent.

“The banking regulator may reduce that rate whereby you’re tested in your ability to repay a loan and that may increase your ability to borrow.”

She added even if the RBA reduces interest rates twice this year as predicted, the market won’t recover unless the Australian Prudential Regulation Authority (APRA) reverse its figure.

“The problem is if you have that 7.25 per cent sticking there to be judged for your loan and the interest rates are dropping, it doesn’t matter that they dropped rates because you still can’t make the 7.35 per cent,” she said.

Ms Corte went on to say that those with a current mortgage who have been with their lender for some time are the best placed in the market.

“The banks own funding costs have come down in recent months and they’re competitive for the loans they want. And the loans they have, they want to keep those people.

She added those in the market for a mortgage right now should forget APRA and the RBA, instead they should call their bank.

“It’s a five to 10-minute phone call. You say ‘Suncorp, HSBC and Macquarie rates of 3.7 per cent, the NAB and Commonwealth rates of 3.8 per cent’,” she said.

“If your rate is nowhere near those, you call the bank and they should give you a better rate.”

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